When I decided to deep dive into blockchain, I was dumbstruck and surprised to see the current ecosystem - 1000s of coins listed already and evolving at a breathtaking pace! I spent a good amount of time stitching the pieces together. It’s not straightforward. Needless to say that industry is still evolving and so is the terminology. Like any tech stack, Web 3 Tech stack varies from project to project depending on use cases. There are, however, core components that can help provide a mental model for understanding the ecosystem and how each component interacts with the other. I am also learning this exciting field!
- Layer 0 - Hardware & Networking Layer
- Layer 1 - Consensus Layer
- Layer 2 - Scaling Layer
- Layer 3 - Smart Contracts Layer
- Layer 4 - User Interface Layer
Layer 0 - Hardware & Networking Layer: Everything we do is processed at a Silicon chip essentially computers. It could be in your local PCs or Google or Amazon or any other server. These computers are processing the information from the hardware layer. In Web3, it is an open, decentralized networking layer like never before. You can even become a part of this layer anytime you want and leave as you please. That’s the meaning of decentralized. When you become part of this layer, you will be running the computations on your computers. Of course, with decentralization complexity increases for managing and processing the computation.
Layer 1 - Consensus Layer: A consensus layer is one that is responsible for maintaining consistent information agreed upon with all network participants. This information could be anything from how many ether one account hold to how many NFTs any address holds. This is at the heart of blockchain. The network needs to have consensus on key parameters which define the fundamental property of blockchains like block size, block rate, consensus algorithm (POW and POS the most famous ones). We have many layer 1 protocols available today - Bitcoin, Ethereum, Solana, LiteCoin, Binance Smart Chain, DogeCoin, Avalanche. All have different tradeoffs and the most appropriate one can depend on the use case. Bitcoin and Ethereum are among the largest and most popular Blockchains currently existing**. Users need to be part of the network to interact with the blockchain.** Yes for buying, transferring, or doing anything for that matter users need to be part of the network. There are different options of taking part in the network. They can run their own node either a full node or a half node. If you have bought a cryptocurrency without doing any of this ever, it is because of the product Blockchain Node as a Service!! It essentially means the service provider will run the Blockchain Node for the user. User does not have to get into the complexity of running a node for interacting with Blockchain. Yeah, your service provider did all this for you when you bought your crypto! Major players are Infura, Alchemy, Moralis, QuickNode, etc.
Layer 2 - Scaling Layer: This layer is primarily applicable for Ethereum. Blockchains are chains of blocks. Each block can store a fixed amount of data. Therefore, blockchains have limited space. Simplistically, users need to pay fees to use this block space. This fee is paid in native token ETH. The current Ethereum blockchain can handle 15–45 transactions per second. Recently, these fees on Ethereum skyrocketed from around Jan 2020 due to the increased demand. The two core reasons were - Massive growth in applications being built on Ethereum and increased adoption. This made transacting on Ethereum extremely expensive. A host of scaling solutions emerged to combat this. We will not go into the implementation technologies of these scaling solutions. The most notable ones are Polygon, Arbitrum, Optimism, Immutable X. This formed a layer over Ethereum with low transaction fees and fast transactions while locking into Ethereum’s security. Since then, many of the dApps have moved to Layer 2 for cheap and fast transactions. Any dApp can be built on Ethereum or L2 solutions. Ethereum itself is building its L2 scaling solution to support up to 100, 000 transactions per second.
Layer 3 - Smart Contract Layer: Smart contracts can be deployed on L1 or L2. Smart Contracts are fundamental building blocks that ever get built on top of Blockchain. This allows contracts to interact with the addresses on that particular blockchain. Smart Contracts are self-sustaining immutable code submitted to the network. It cannot be altered. Smart Contracts allow any logic to be encoded and enforced paving the way for all innovations. Ethereum has made it extremely easy to create own tokens both fungible or non-fungible with just a few lines of code. The majority of the tokens present are at this Layer. Examples are Uniswap, Compound, The Graph, etc. These are independent organizations developed over Ethereum. They have their own native token to drive incentives and governance.
Layer 4 - User Interface Layer: This is the bridge to connect the entire blockchain ecosystem to the people. A more familiar UI/UX layer as Web 2. For example, all exchanges and wallets are at this layer. Web3 addresses serve as your identity on the blockchain.